EIM11415 - Living accommodation: avoidance area: lease premium cases

Section 105 ITEPA 2003

In these cases the employer takes a short lease on living accommodation from a third party. Instead of paying the market rent for the property the employer pays a large premium and a small annual rent. It is argued that none of the premium can be treated as rent for the purpose of measuring the cash equivalent of this benefit.

An example will illustrate the point. A London flat owned by a third party has a market rental value of £25,000 per annum and gross rateable value under the old rating system of £800. An employer enters into a 3 year lease with the third party paying a premium of £75,000 and a rent of £100 per annum. The employer then provides the flat rent free to an employee. The cash equivalent of the benefit is the higher of:

• the gross rateable value and
• the actual rent payable.

It is argued that the cash equivalent of the living accommodation benefit is £800 gross rateable value because none of the £75,000 can be treated as rent.

In some circumstances we might wish to argue that the premium should be treated as rent. PAYE Technical in any case on which you wish to argue the point.